The Innovation Fund is a funding instrument set up for the revised EU Emissions Trading System (EU ETS).
The Fund will amount to about (the revenues of these sales depend on the carbon price) EUR 10 billion.
The funding comes from:
- market value of at least 450 million allowances at the time of their auctioning from 2020 to 2030,
- any unspent funds from the NER300 programme,
- up to 50 million allowances which may be made available to the fund if not needed for the EU ETS Market Stability Reserve (MSR).
The Innovation Fund will support, on a competitive basis, the demonstration of innovative technologies and breakthrough innovation in sectors covered by the EU ETS, including innovative renewables, carbon capture and utilisation (CCU) and energy storage (Report from the Commission to the European Parliament and to the Council, Report on the functioning of the European carbon market, COM(2018) 842 final, p. 10).
Projects in all EU Member States, including small scale projects, will be eligible.
The procedure for making the Innovation Fund operational started with a public consultation, which was carried out in the period 15 January 2018 - 10 April 2018.
The legal basis for the operation of the Innovation Fund is Article 10a(8) of the EU ETS Directive (Directive 2003/87/EC, as amended by the Directive 2018/410).
The said Article 10a(8) of Directive 2003/87/EC establishes the Innovation Fund and lays down general rules of the functioning of the Innovation Fund, namely, the source of the Innovation Fund revenues, the projects eligible for the Innovation Fund support, as well as the general rules for the disbursement of the support.
Moreover, Article 10a(8) specifies the criteria for the selection procedure and allows the complementary financing of the eligible projects to be provided by the Member States or the Union.
In addition, Article 10a(8) of Directive 2003/87/EC empowers the European Commission to adopt delegated acts to supplement the Directive concerning rules on the operation of the Innovation Fund, including the selection procedure and criteria.
This delegation has been exercised by the Commission Delegated Regulation (EU) 2019/856 of 26 February 2019 supplementing Directive 2003/87/EC of the European Parliament and of the Council with regard to the operation of the Innovation Fund.
The said Regulation establishes the rules necessary for the operation of the Innovation Fund while at the same time leaving some decisions to be made in the calls for proposals and in the contractual documentation.
The key vehicle to deliver the support through the Fund are grants - the Innovation Fund will cover up to 60% of the relevant costs (in line with Article 10a(8) of the EU ETS Directive).
The definition of additional costs accentuates the difference in costs and revenues compared to a conventional technology (which is also in line with the practice in EU state aid assessment and the NER 300 programme).
Small-scale projects are treated preferentially (by establishing a simplified definition of relevant costs).
The Regulation envisions the following structure of financing:
- up to 40% of the award provided as upfront funding at financial close (to de-risk projects),
- the remaining 60% of the grant provided according to the cash-flow needs of the project at specific milestones.
The two-phase application procedure is envisioned. The calls for proposals for the Innovation Fund will be organised centrally by the European Commission with the support of implementing bodies.
The Regulation also lays down the rules for reporting, monitoring, evaluation, control, and publicity.
Regular calls for proposals up to 2030 are foreseen, however, the Regulation does not set any timing in-between, thus enabling the necessary adaptations to demand and maturity of the projects.
The first call for proposals was envisioned to be published in January 2020 (Commission Staff Working Document, Progress in Accelerating Clean Energy Innovation 2018, 9.4.2019 SWD(2019) 157 final, p. 17).
Fit for 55
European Commission Proposal of 14 July 2021 for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union, Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and Regulation (EU) 2015/757, COM(2021) 551 final, 2021/0211 (COD)) increases the Innovation Fund in Article 10a(8).
The scope of the Innovation Fund is extended to allow it to provide support to projects through competitive tendering mechanisms such as Carbon Contracts for Difference (CCfDs).
In addition, the Innovation Fund is increased by 50 million allowances sourced in the same manner from the allowances available for free allocation and for auctioning as is the case for the current endowment of the Fund.
As a result, 40 million allowances will stem from the allowances available for free allocation, and 10 million allowances from the allowances to be auctioned.
Article 10a(8) of the Directive 2003/87/EC after amendment made by the Directive 2018/410
325 million allowances from the quantity which could otherwise be allocated for free pursuant to this Article, and 75 million allowances from the quantity which could otherwise be auctioned pursuant to Article 10, shall be made available to support innovation in low-carbon technologies and processes in sectors listed in Annex I, including environmentally safe carbon capture and utilisation (‘CCU’) that contributes substantially to mitigating climate change, as well as products substituting carbon intensive ones produced in sectors listed in Annex I, and to help stimulate the construction and operation of projects that aim at the environmentally safe capture and geological storage (‘CCS’) of CO2 , as well as of innovative renewable energy and energy storage technologies; in geographically balanced locations within the territory of the Union (the ‘innovation fund’). Projects in all Member States, including small-scale projects, shall be eligible.
In addition, 50 million unallocated allowances from the market stability reserve shall supplement any remaining revenues from the 300 million allowances available in the period from 2013 to 2020 under Commission Decision 2010/670/EU, and shall be used in a timely manner for innovation support as referred to in the first subparagraph.
Projects shall be selected on the basis of objective and transparent criteria, taking into account, where relevant, the extent to which projects contribute to achieving emission reductions well below the benchmarks referred to in paragraph 2.
Projects shall have the potential for widespread application or to significantly lower the costs of transitioning towards a low-carbon economy in the sectors concerned. Projects involving CCU shall deliver a net reduction in emissions and ensure avoidance or permanent storage of CO2. Technologies receiving support shall not yet be commercially available but shall represent breakthrough solutions or be sufficiently mature to be ready for demonstration at pre-commercial scale. Up to 60 % of the relevant costs of projects may be supported, out of which up to 40 % need not be dependent on verified avoidance of greenhouse gas emissions, provided that pre-determined milestones, taking into account the technology deployed, are attained.
The Commission is empowered to adopt delegated acts in accordance with Article 23 to supplement this Directive concerning rules on the operation of the innovation fund, including the selection procedure and criteria.
Allowances shall be set aside for the projects that meet the criteria referred to in the third subparagraph. Support for these projects shall be given via Member States and shall be complementary to substantial co-financing by the operator of the installation. They could also be co- financed by the Member State concerned, as well as by other instruments. No project shall receive support via the mechanism under this paragraph that exceeds 15 % of the total number of allowances available for this purpose. These allowances shall be taken into account under paragraph 7.
Commission Delegated Regulation (EU) 2019/1868 of 28 August 2019 amending Regulation (EU) No 1031/2010 to align the auctioning of allowances with the EU ETS rules for the period 2021 to 2030 and with the classification of allowances as financial instruments pursuant to Directive 2014/65/EU of the European Parliament and of the Council, Recital 4
Directive 2003/87/EC establishes the Modernisation Fund to improve energy efficiency and modernise the energy systems of certain Member States and the Innovation Fund to support investments in innovative technologies. Both funds are financed through the auctioning of allowances on the common auction platform by the European Investment Bank (‘EIB’). To this end, the EIB should become the auctioneer for the two funds without becoming part of the joint procurement procedure for the common auction platform. The relevant volumes of allowances should be auctioned at the same auctions as the volumes auctioned by the Member States and the EEA EFTA states participating in the common auction platform.
14 July 2021
Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union, Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and Regulation (EU) 2015/757, COM(2021) 551 final, 2021/0211 (COD)
16 December 2020
2 July 2020
28 May 2019
Commission Delegated Regulation (EU) 2019/856 of 26 February 2019 supplementing Directive 2003/87/EC of the European Parliament and of the Council with regard to the operation of the Innovation Fund published in the OJ L 140,, p. 6–17
14 March 2018
Directive (EU) 2018/410 of the European Parliament and of the Council amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments, and Decision (EU) 2015/1814
15 January 2018
EU ETS Directive, Article 10a(8)
Directive (EU) 2018/410 of the European Parliament and of the Council of 14 March 2018 amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments, and Decision (EU) 2015/1814